Cane Company manufactures two products called Alpha and Beta that sell for $155
ID: 2485859 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $155 and $115, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 110,000 units of each product. Its unit costs for each product at this level of activity are given below:
Alpha
Beta
Direct materials
$
24
$
12
Direct labor
23
26
Variable manufacturing overhead
22
12
Traceable fixed manufacturing overhead
23
25
Variable selling expenses
19
15
Common fixed expenses
22
17
Total cost per unit
$
133
$
107
The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.
3. Assume that Cane expects to produce and sell 87,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 17,000 additional Alphas for a price of $108 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
4. Assume that Cane expects to produce and sell 97,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 3,000 additional Betas for a price of $46 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
5. Assume that Cane expects to produce and sell 102,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 17,000 additional Alphas for a price of $108 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 9,000 units. Calculate the incremental net operating income if the order is accepted?
Cane Company manufactures two products called Alpha and Beta that sell for $155 and $115, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 110,000 units of each product. Its unit costs for each product at this level of activity are given below:
Explanation / Answer
Statement of net Income of Cane Company for Alpha Sales Volume 87000 Units Per Unit Cost (Alpha) Sales $155 Less: Variable Cost $88 Contribution Margin $67 If Company accepts the order of 17000 additional Alphas then It has contribution per Unit will be as follows Incremental Revenue $1,836,000 Less Incremental Variable Cost $1,496,000 Incremental Net Operating Income $340,000 If Company accepts the Offer of the customer It will increase profit by $340000 Statement of net Income of Cane Company for Beta Sales volume of 97000 Units Per Unit Cost (Beta) Sales $115 Less: Variable Cost $65 Contribution Margin $50 If Company accepts the order of 3000 additional Beta then It has contribution per Unit will be as follows Incremental Revenue $138,000 Lesss: VariableCost Per Unit $195,000 Contribution Margin ($57,000) If Company accepts the Offer of the customer it will decrease profit by $97000 If the Offer of 17000 Additional Units at $108 Per unit is accepted Contribution Margin Lost on 9000 Regular Units $ (603,000) Traceable Fixed Overhead Saved 207000 Additional Contribution margin of $20 on 17000 Units 340000 Net Incremental Income $ (56,000)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.